The Administration is committed to strengthening taxpayer rights and will
continue to work with Congress and the IRS to ensure that taxpayers receive
the best service possible. Many of the provisions of H.R. 4163 represent
important advances since the Internal Revenue Service Restructuring and
Reform Act of 1998 was signed into law by the President. Moreover, the
Administration remains committed to protecting taxpayer privacy and
confidentiality, which form the foundation of our system of voluntary
compliance. The Administration will work with Congress to ensure the
enactment of these provisions.

The Administration opposes section 102 of the bill, which allows an
exclusion from income for interest received on overpayments of tax.
Section 102 would create a tax-exempt, Federally-guaranteed, risk-free
obligation that would bear an artificially high interest rate (three
percentage points above the comparable rate for Treasury bills). Taxpayers
thus would have an incentive to "invest" with the Internal Revenue Service
by intentionally overpaying their taxes in order to receive this tax-free
interest. The provision in the bill that would allow the Secretary of the
Treasury to remove the exemption in cases of "abuse" is not administrable.

The Administration has concerns with certain other provisions of H.R. 4163
(e.g., interest abatement, disclosure of IRS "working law", third-party
return disclosures, and other aspects of Title II of the bill) and looks
forward to working with Congress to address them during the legislative
process. Many of these concerns can be addressed by modifications to the
bill to provide clarity and objective criteria for application. In
addition, the ability of the Internal Revenue Service to implement the
provisions in a timely fashion must be taken into account in fashioning the
final provisions.

Pay-As-You-Go Scoring

H.R. 4163 would affect receipts; therefore, it is subject to the
pay-as-you-go requirements of the Omnibus Budget Reconciliation Act of
1990. The Administration has not yet completed its scoring of the bill,
but it is evident that the magnitude of the proposed tax cut ($2.1 billion
over FYs 2001-2005, according to the Joint Committee on Taxation) and the
absence of any offsets could cause a significant sequester of Federal
resources.